Musings on economics and politics, with a special interest in free banking and monetary disequilibrium.

Sunday, February 14, 2016

The "Jobs" Fallacy and Trumpanomics

According to Bryan Caplan, average people make the mistake of focusing on "jobs" as a primary good.

Years ago, the Wall Street Journal reported on a poll where the responses of average people were contrasted with the answers of economists. One of the questions was about the purpose of economic activity: Is it to create good jobs or produce consumer goods and services. While I think the correct answer (and the one most consistent with economics) is to promote human welfare, of the two options, producing consumer goods and services is the least bad. And that is the one that economists chose. In contrast, the general public went for creating good jobs.

I sometimes lampoon that result by proposing the perfect economy. Everyone can have the choice of a good job requiring manual labor--digging holes and filling them up. Or else, they can have a great office job--moving paper from the left side of the desk to the right side and then back again. Each job will pay $100,000 per year. Once everyone has these good jobs, will we be in utopia? Of course not, we will all promptly starve to death because no consumer goods and services are being produced.

Now tell me, what is the point of having people do work? Is it to keep them from being bored? Is it to provide an excuse to hand out paper money to them? Or is it to produce useful goods and services?

Anyway, consider the notion of "a job" to be nothing more than an entitlement to get some money. That somehow there must be goods and services to buy if the money is to have value is ignored. Or, perhaps "jobs" are entitlements for manna from heaven.

Now, assume that jobs are limited.

If the Chinese use their sneaky, unfair trade practices to steal "American" jobs, then they have more of these jobs and Americans have less. They are richer, and Americans are poorer. Elect Trump, and he will use his clever bargaining techniques to win back these jobs for Americans. The Americans, now having more of the limited quantity of jobs, will be richer and the Chinese, having fewer of the jobs, will be poorer.

With illegal immigration, the same principle holds. Foreigners, chiefly small brown people from Mexico and Central America, come in and steal jobs from regular Americans. These foreigners are better off and the Americans are worse off. If the foreigners can be rounded up and deported, then they will no longer be taking American jobs. Americans will get the jobs and so Americans will be better off. The foreigners won't have he jobs, and so they will be worse off.

And now you should understand Trumpanomics. Appeal to economic ignorance.

In reality, jobs are about producing goods and services. There is not a limited number of jobs available. When the Chinese produce goods and services, that does not prevent Americans from producing goods and services. When people come to the U.S. from Mexico and Central America, they produce goods and services. That doesn't prevent native-born Americans from producing goods and services.] too.

We can and should have as many jobs as there are people who want to work.

However, it is true that imports from China or immigration of people from Mexico or Central America might result in a redistribution of income among people in the U.S.--including native-born Americans. For some Americans, the Chinese or immigrants will be customers for their products. For others, businesses will need their services along with the labor of the immigrants, raising their incomes. For some Americans, cheaper prices for imported goods or the products of immigrants will raise their real incomes. And, sadly, for some Americans, the competition of foreign labor will result in lower incomes.

For the economically ignorant, Trump is promising to take from foreigners and give to Americans. In reality, what his rhetoric suggests is taking from some Americans and giving to other Americans. Sure, it will also hurt the foreigners. Mexicans and Central Americans will produce less and earn less in their home countries. If China cannot sell to the U.S., what Chinese workers produce will be of less value and they will be poorer. And, as a whole, so will Americans--even if we only count native-born Americans (and legal immigrants.) But some native-born Americans might well get a bigger piece of a smaller pie. But the more these sorts of policies are followed, the more likely they are to end up with about the same share of a smaller pie--that is less.

And that is the story of countries like Argentina. They were one of the highest income countries in the world. And then they listened to the "strong leaders" who would help the average Argentine get his fair share instead of allowing them to be exploited by the British Imperialists. And Argentina, step-by-step sunk into the third world. And that is what Trump is offering to Americans.

Of course, Trump will still have his gold-plated bathroom fixtures. There are some very rich people in Argentina even today. But most of us will suffer. Economic ignorance is never a good idea.